The economics of vehicles

Date posted: July 29, 2011

Vehicle buying has gotten harder. Fuel efficiency is a big concern. When we look at the major alternatives to the combustion engine – such as all-electric and hybrid vehicles — is economics working in their favor? N.C. State University economist Mike Walden responds.

“Well … we’ve got an essential trade off here. What’s going to happen is you’re usually — not with all vehicles, but you’re usually — going to pay more up front for one of these alternative fuel vehicles like … the all-electric or the hybrid vehicle. But as long as gas prices stay high and perhaps even go higher, since you get better gas mileage with those alternatives, you’re going to save money in the future.

“So this is a classic, classic economic trade off. You pay more now in order to save in the future. And what it comes down to — really, the research shows — is how long you’re going to keep the alternative vehicle. And the latest data show that, for example, if you’re comparing a hybrid, which is a combination electric engine/gas combustion engine, if you’re comparing a hybrid to a typical gas combustion engine, if you keep that hybrid for longer than six years, you’re going to save money.

“If you’re comparing an all-electric to a gas combustion engine, now this was interesting, the research shows you have to keep it for at least eight years. Now I will say that for those who are very concerned about the environment, don’t be fooled necessarily by the fact that you’re getting an all-electric vehicle. You have to worry about where does that electric come from. How’s it generated? Is it from coal or natural gas or some other source?

“So, this is the economics. And I will say this totally ignores the issue of how many cup holders you get.”

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Economic Perspective, featuring N.C. State University economist Mike Walden and host
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